Audit Exam 2 Simulations
The table below presents ratios considered significant in the current and prior years' audit of Sutten, Inc. Using the financial statements and ratio summary in the exhibits, compare the values for each ratio. In the Explanation column select the most likely explanation for the analytical results. An explanation may be used once, more than once, or not at all. (You should not recalculate ratios.) The information in the Analytics Definitions exhibit must be used for all financial ratio calculations.
Debt to equity: Year 2 = 1.99, Year 1 = 4.61, Explanation = Capital Stock was issued during the year Gross Profit Margin: Year 2 = 38%, Year 1 = 41%, Explanation = Manufacturing costs decreased less than sales decreased during the year.
Isaac, CPA, is auditing Fun Fitness Inc., a calendar-year corporation. He is performing analytical procedures relative to the sales account for Year 2. He also audited the consolidated financial statements for Fun Fitness in Year 1 and issued an unmodified opinion. TABLE 3
Expectation based on relationship between sales and commission: Year 2 Sales Expected = $1,578,000, Year 2 Sales Actual = $1,506,900, Dollar Difference = $71,100 Reliability of data: Not reliable Evaluate the significance of difference: Method unreliable-perform alternative procedures
Isaac, CPA, is auditing Fun Fitness Inc., a calendar-year corporation. He is performing analytical procedures relative to the sales account for Year 2. He also audited the consolidated financial statements for Fun Fitness in Year 1 and issued an unmodified opinion. TABLE 2
Expectation based on square footage and external industry data: Year 2 sales expected = $1,536,480 , Year 2 Sales Actual = $1,506,900 , Dollar Difference = $29,580 Reliability of data: Reliable Evaluate the significance of difference: Difference is inmaterial-no further investigation necessary
Isaac, CPA, is auditing Fun Fitness Inc., a calendar-year corporation. He is performing analytical procedures relative to the sales account for Year 2. He also audited the consolidated financial statements for Fun Fitness in Year 1 and issued an unmodified opinion. TABLE 1
Gross Margin percentage: year 1 = 41.9% , year 2 = 39.8%, year over year % change = 5.3% Reliability of data: reliable Evaluate the significance of difference: Difference is material-further investigation necessary
Inventory Item No. 1234
Impact of Adjusting JE on the Inventory Turnover Ratio: Decrease Impact of Adjusting JE on the Return on Equity Ratio: Increase
Inventory Item No. 15125
Impact of Adjusting JE on the Inventory Turnover Ratio: Decrease Impact of Adjusting JE on the Return on Equity Ratio: Increase
Inventory Item No. 3146
Impact of Adjusting JE on the Inventory Turnover Ratio: Increase Impact of Adjusting JE on the Return on Equity Ratio: Decrease
Cash Dividend
Impact of Adjusting JE on the Inventory Turnover Ratio: No impact Impact of Adjusting JE on the Return on Equity Ratio: Increases
the auditor of an issuer identified several misstatements and proposed the AJE to management.
PCAOB AS 1301. 19
Part I: $35,000 ; 129 units ; 1-15 Part II: 1-10
Part I: 1 = Y ; 2 = N ; 3 = N ; 4 = Y ; 5 = N ; 6 = N ; 7 = N ; 8 = N ; 9 = Y ; 10 -12 = N ; 13 = Y ; 14-15 = N Part II: 1. difference = 100 ; tainting = 3.08% ; sampling interval = 40,000 ; projected error = 1,232 2. difference = 355 ; tainting = 3.38% ; sampling interval = 40,000 ; projected error = 1,352 3. difference = 125; tainting = 4.39 ; sampling interval = 40,000 ; projected error = 1,756 4. difference = 740 ; tainting = 20.33 ; sampling interval = 40,000 ; projected error = 8,132 5. difference = 895; tainting = 7.62 ; sampling interval = 40,000 ; projected error = 3,048 6. difference = 950 ; tainting = 2.89 ; sampling interval = 40,000 ; projected error = 1,156 7. difference = 225 ; tainting = 30 ; sampling interval = 40,000 ; projected error = 12,000 8. difference =660 ; tainting = 8.91 ; sampling interval = 40,000 ; projected error = 3,564 9. difference = 925 ; tainting = 14.14 ; sampling interval = 40,000 ; projected error = 5,656 10. difference =12,550 ; tainting = 100 ; sampling interval = 40,000 ; projected error = 40,000 total projected error = 77,896
A CPA firm is auditing Avila Apartments, a calendar year-end nonissuer, for the Year 4 audit.
Pop-up 1: We used a nonstatistical predictive model to come up with our expectation of rental revenue for each month (dependent variable), which was aggregated to give us the total expected rental revenue for Year 4 Pop-up 2: Average monthly rental rate of $5.00 per square foot. Pop-up 3: The actual rental revenues were more than $20,000 higher than expected for the months of June, July, and December Pop-up 4: Based on our analytical procedure, there was a difference of $183,220 between our annual revenue expectation of $9,137,500 and actual revenue of $9,320,720. Pop-up 5: Based on our additional procedures, we obtained evidence that the occupancy was about 75 percent at Park and Hickory in June and July, which explains $146,250 of the difference. Pop-up 6: Based on the additional information, we believe that there is no material misstatement of revenue because expected misstatement is less than performance materiality.
Your CPA firm is planning the Year 4 audit of Tall Towers LLC, a calendar year-end nonissuer.
Popup#1: To test completeness of the security deposit liability account balance, select a sample of residents from the rent roll and verify they are included on the security deposit detail Popup#2: AR confirmations will not be sent because the AR balance is immaterial Popup#3: Note that residents who move in after Dec. 1 will always have manually posted rent charges and can be recalculated using the Rent Roll Popup#4: From local trends, we would expect to see a downward trend in occupancy with the sharpest decrease in the summer. Popup#5: Select a sample of cash receipts in the cash receipts journal and vouch to the banks statements
During the review of KD CO, the engagement manager has obtained a trial balance and identified the accounts below for further review
Row 2: Cash | Are there compensating balances or other restrictions on the availability of funds? Row 3: Accounts receivable | Has there been a proper cutoff of sales transactions? Row 4: Inventory | Were consignments in or out considered in taking a physical inventory count? Row 5: Fixed assets | What are the company's capitalization policies, and have those policies been consistently and appropriately applied? Row 6: Accounts payable | Have all liabilities been appropriately accrued? Row 7: Debt | Are there assets that have been pledged as collateral?
you have been engaged to issue a review for Tustin Company for Year 2 financial statements.
Row 2: Prospectively Row 3: Retrospectively Row 4: Retrospectively Row 5: Prospectively Row 6: Prospectively Row 8 = 3,000,000 Row 9 = 1,700,000 Row 10 = 7,000 Row 11 = 200,000 Row 12 = 80,000 Row 13 = 30,000 Row 14 = 300,000 Row 15 = 40,000 total - 703,000
charles, CPA, performs a variety of engagements in accordance with statements on standards for accounting review services during the year.
Row 2: Review = R ; Compilation = R Row 3: Review = R ; Compilation = N Row 4: Review = N ; Compilation = N Row 5: Review = R ; Compilation = R Row 6: Review = N ; Compilation = N Row 7: Review = R ; Compilation = N Row 8: Review =N ; Compilation = N Row 9: Review = N ; Compilation = N Row 10: Review =R ; Compilation = N Row 11: Review = R ; Compilation = N Row 12: Review = N ; Compilation = N Row 13: Review = R ; Compilation = N Row 14: Review = N ; Compilation = N Row 15: Review = N ; Compilation = N Row 16: Review = N ; Compilation = N
the following situations represent exerpts from the responses to audit inquires of external legal counsel of XYZ Co.
Situation 1 - financials = No impact on financial statement or footnotes ; report = legal response is appropriately dates Situation 2 - financials = verify amount due attorney is recorded in financial statements ; report = update legal response Situation 3 - financials = disclosure in footnotes regarding nature of litigation, but no amount disclosed ; report = update report date Situation 4 - financials = disclosure in footnotes regarding nature of litigation, but no amount disclosed ; report = update report date Situation 5 - financials = potential litigation settlement accrued in financial statements and amount disclosed in footnotes ; report = update legal response Situation 6 - financials = potential litigation settlement accrued in financial statements and amount disclosed in footnotes ; report = update legal response
The auditor scanned the repairs and maintenance account for unusually large amounts
Type of Audit Procedure: Analytical
The auditor sent a letter to the company's outside attorney accompanied by management's request for information concerning pending or threatened litigation, claims, and assessments.
Type of Audit Procedure: Inquiry
During the physical inventory count, the auditor requested that certain material containers be opened to ensure they were not empty.
Type of Audit Procedure: Inspection
The auditor obtained a copy of the company's accounting manual and read the section on inventory to prepare for the physical inventory observation.
Type of Audit Procedure: Inspection
During a site visit to a branch warehouse, the auditor noted unauthorized personnel have access to the inventory
Type of Audit Procedure: Observation
The auditing firm's computer assisted audit specialist obtained an electronic billing file from the company and checked the accuracy of the summarized billings file.
Type of Audit Procedure: Recalculation
The auditor obtained the company's aging of accounts receivable and independently created the aging of certain accounts.
Type of Audit Procedure: Reperformance
Operating profit margin
Year 2: 26.78% Explanation: Operating expenses increased at a higher rate than sales revenue
Days sales in accounts receivable
Year 2: 41.04 Explanation: A larger percentage of sales occurred during the last month of the year as compared to the prior year.
Accounts receivable turnover
Year 2: 9.81 Explanation: A larger percentage of sales occurred during the last month of the year, as compared to the prior year.
the year under audit is year 3. jax reinco, cpa, is performing cutoff testing for fine furniture.
item No. 3152 = Dr. inventory 80,000 & sales 100,000 ; Cr. COGS 80,000 & AR 100,000 item No. 4567 = Dr. inventory 16,000 ; Cr. AP 16,000 item No. 2194 = No entry required item No. 2156 = Dr. COGS 40,000 & AR 50,000 ; Cr. Inventory 40,000 & sales = 50,000
1. Receivables at the end of year 2 are properly cutoff w/ respect 2. The aggregate of net receivables 3. depreciation exp. is fairly stated 4. FA included in the balance sheet exist
row 2 = D row 3 = H row 4 = C row 5 = E row 6 = J row 7 = K row 8 = M row 9 = N
Control process or document
#1 = To accounts receivable #2 = to cashier #3 = checks #4 = accounts receivable master file update #5 = listing of checks #6 = match documents
Employee ID
00005 = yes ; satisfied control attribute without exception 00014 = no ; PTO hours paid in excess of authorized amount of PTO 00018 = No ; total hours on time sheet do not agree to total hours on payroll report 00022 = total hours agree but allocation of hours between regular and PTO categories is incorrect
1. Balance per perpetual inventory system 2. Inventory receipt No. 1992 3. Inventory awaiting return to vendor 4. Scrap 5. Obsolete inventory 6. Price adjustment
1 = Agree to the client's perpetual inventory system report as of 12/31, year 1 2 = Inspect vendor's bill of landing for proper shipping date and terms 3 = Inspect vendor's return authorization document to determine if item is properly excluded from inventory 4 = inspect the scrap inventory log and supporting documentation to verify the amount and the date the disposal was recorded 5 = review the plant manager's approval and corresponding journal entry recording the adjustment to general ledger 6 = review vendor invoice and recalculate adjustment. Agree corresponding journal entry to the general ledger
Test Count Number 1-6
1 = Inspect supporting purchase documents for proper shipping terms and receiving information to verify inclusion in inventory count 2 = Inspect supporting sale and shipment documentation for proper shipping terms for inclusion in inventory count 3 = Inspect supporting purchase documents for proper shipping terms and receiving information to verify inclusion in inventory count 4 = Request that client make appropriate correction to record additional inventory 5 = Inspect supporting sale and shipment documentation for proper shipping terms for inclusion in inventory count 6 = Review return shipment documentation to verify exclusion from inventory count
tucker co. hired dabies and Co., CPA to perform a review of their annual financial statements for the year ended 12/31, year 1
1 = applying analytical procedures to question 2 preparation and fair presentation Question 3: design, implementation, and maintenance Question 4: conduct the review Question 5: Statements on Standards for Accounting and Review Services Question 6: limited assurance Question 7: accounting principles
confirmation numbers 1-6
1 = verify the cash receipt and deposit 2 = purpose that rachel industries book an AE 3 = purpose that rachel industries book an AE 4 = verify the cash receipt and deposit 5 = purpose that rachel industries book an AE 6 = purpose that rachel industries book an AE
1. mingle mixer 2. mingle slice and dice 3. mingle depositor
1. $2,450,000 ; calculations do not follow the company's accounting policy 2. $270,000 ; calculations have math errors 3. $0 ; N/a adjustments not needed the allowances for warranties balance is materially misstated and required adjustment
1. Mean-per-Unit Estimation 2. Ratio estimation 3. Difference estimation
1. $3,200,000 2. $3,405,405 3. $3,411,111
1. Sample size without stratification 2. Sample size with stratification 3. Will stratification improve the efficiency of testing?
1. 27 2. 6 3. Yes
1. additions to PPE 2. disposals of PPE 3 depreciation exp 4. repairs and maintence exp 5. construction in progress
1. 3600 ; 900 ; -900 2. -25,200 ; -12900 ; -7700 3. 0 ; -9219 ; 9216 4. 5400 ; 900 ; 4500 5. 0 ; 10,000 ; -10,000
Customer ID 1. ABC 2. DEF 3.GHI 4. JKL 5. *** 6. MNO 7. PQR 8.STU
1. Cash received equals invoiced amount 2. Cash received < invoice amount 3. Cash received > invoice amount 4. Cash received = invoiced amount 5. Cash received but no invoice 6. Cash received > invoice amount 7. No cash received but invoiced 8. Cash received < invoice amount
1. This year, we have adopted a lean inventory system. 2. This year, we made a decision to tighten our credit policy 3. This year, we made large investments in our FA 4. As a result of enhanced efficiencies
1. Column B: Correct Column C: Current Ratio ; Inventory Turnover ; Quick Ratio 2. Column B: Incorrect Column C: Quick Ratio ; AR Turnover 3. Column B: Incorrect Column C: Asset Turnover ; D/E Ratio ; Total Debt Ratio ; TIE 4. Column B: Correct Column C: Gross Margin % ; Net operating margin %
Category: 1. Cash received but no invoice 2. No cash received but invoiced 3. Cash received > invoice amt 4. Cash received < invoice amt 5. Cash received = invoiced amt
1. Determine if cash relates to disposals of property and other fixed assets. 2. Identify the invoices that matched those in the open accounts receivable table as of the end of the year. 3. Determine if there were unrecorded sales. 4. Determine if there were unrecorded sales returns. 5. No further audit work deemed necessary.
1. the bank's confirmation reply regarding the company's line of credit 2. employee overtime pay for hours worked before year end, but 3. in the last week of year 2, the company recorded revenue 4. during year 2, a former client sued the company 5. at the end of year 2, a major customer filed for bankruptcy
1. Dr = interest exp ; Cr = accrued liabilities 2. Dr = operating exp. ; Cr = accrued liabilities 3. Dr = revenues ; Cr = AR 4. no entry required 5. Dr = operating exp ; Cr = allowance for doubtful accts
1. After reviewing the balance sheet and corresponding documentation 2. Derek is concerned that the allowance for uncollectible accounts 3. When reviewing the accounts receivable subsidiary ledger, 4. In reviewing documentation, Derek came across 5. When Derek was reviewing the last quarter's revenues, he noticed 6. When reviewing the working capital of the company, Derek noticed
1. Existence and Occurrence | Observation ; Inspection & Examination ; Vouching 2. Valuation, Allocation, & Accuracy | Review of subsequent events ; independent recalculations\estimates 3. Rights and obligations | Inspection & examination ; Confirmation ; Review of subsequent events 4. Understandability & classification | Inquiry ; Review of subsequent events 5. Cutoff | Cutoff procedures ; inspection & examination 6. Completeness | Tracing, review of subsequent events
1. How will the sample size for the attribute sampling plan change? 2. How will the sample size for the variables sampling plan change? 3. Schmidt is thinking about using a dual purpose sample 4. In evaluating the invoices for proper authorization, 5. In evaluating the confirmations associated with each invoice, no error 6. In evaluating the confirmations associated with each invoice, overstatement $10 7. In evaluating the confirmations associated with each invoice, 1% 8. Schmidt is considering using a PPS
1. Increase 2. Decrease 3. 75 4. Controls are operating effectively 5. This will not affect the evaluation of internal control 6. $2,120 7. $495,050 8. $700
1. 1562 2. 1563 3. 1564 4. 1567 5. 1570
1. No audit findings identified ; no audit adjustment necessary ; $0 2. PPE addition was recorded with an incorrect in-service date ; adjust depreciation to reflect correct date placed in service ; $2500 3. PPE addition was recorded with an incorrect asset class ; reclassify addition to correct PPE asset class and adjust depreciation ; $-1740 4. No audit findings identified ; no audit adjustment necessary ; $0 5. Cost was incorrectly capitalized to PPE ; Recorded expense for inappropriately capitalized ; -$4800
Issue #1 Issue #2 Issue #3 Issue #4 Issue #5 Issue #6
1. Reconciliation was not reviewed in a timely manner. 2. Reconciliation was not agreed to the bank statement balance at the appropriate date. 3. Reconciliation contains stale checks. 4. Reconciliation has unsubstantiated unrecorded items. 5. Reconciliation contains aged items that should have been added to the bank balance 6. Reconciliation balance was not properly agreed to the December 31 general ledge balance.
1. Current ratio 2. Return on assets
1. Year 3 = 3.42 ; year 2 = 3.07 ; Yes 2. Year 3 = 7.95% ; year 2 = 20.23% ; Yes Part 2 = Return on equity has decreased significantly from the prior year. The primary cause for the decline is due to a $14.9M (15.6%) decrease in sales from Year 2 to 3. part 3 = Gordon needs to discuss with the controller why the industry index does not support the company's declining sales trend from year 2 to 3.
1. harper communicates significant deficiencies to lampworks in writing 2. harper communicates significant deficiencies to lampworks management 3. harper should communicate to lampworks previously existing 4. harper is obligated to search for significant deficiencies 5. harper communicates significant deficiencies to those charged with governance 6. harper communicates significant deficiencies to lampworks before the audit is complete 7. harpers report on significant deficiencies should be made available to stockholders 8. harper should report to lampworks the absence of significant deficiencies 9. harper communicates significant deficiencies to lampworks by the report release date 10. harpers reports on internal control 11. harper differentiates 12. harpers report 13. harpers report
1. always 2. always 3. always 4. never 5. always 6.sometimes 7. never 8. never 9. sometimes 10. never 11. always 12. always 13. always
1. state that the purpose of the audit was to express an opinion on the financial statements 2. identify, if applicable, items that are considered to be material weaknesses 3. state that the auditor is not expressing an opinion on the 4. include the definition of the term significantly deficiency 5. include the definition of the term material weakness 6. state that the auditor is expressing an unmodified opinion on the 7. state that the communication is intended solely for management 8. identify the matters that are considered to be significant deficiencies
1. excluded 2. included 3. included 4. included 5. included 6. excluded 7. excluded 8. included
1. misstatement of AP : 15,000 2. misstatement of AP : 1250 3. control deficiency 4.misstatement of AP : 12,670
1. investigate unmatched - jan. 1 , year 3 ; the purchasing dept. supervisor forwars a monthly listing 2. from the jan. year 3, cash disbursements journal, select ; a clerk is responsible for matching purchase orders 3. select an unpaid invoice and ask to be walked ; AP personnel are assigned different responsibilities each quarter 4. identify open purchase orders and vendors invoices at dec. 31, year 2 ; the AP supervisor reviews a monthly listing of open purchase
1. a JE was made by the controller year 1 2. a JE was made by the FA manager 3. a JE was made by the controller year 2 4. a JE was made by the controller jan, year 2 5. a JE was made by the controller dec, year 2
1. obtain managements bonus plan and eligible employee list and recalculate exp. 2. confirm with the controller any changes in estimates 3. review board minutes for change in classification of long-lived assets 4. propose AJE to debit prior year RE 5. obtain financial statement of subsidiary
1. production gurus 2. assisted living group 3. red barron trucking
1. opinion types = unmodified ; report modifications = add an emphasis-of-matter paragraph following the opinion paragraph 2. opinion types = unmodified ; report modifications = issue the independent auditor's report without modification 3. opinion types = except for qualified & adverse ; report modifications = modify the auditor's responsibility paragraph & modify the opinion paragraph & add a basis-for-opinion paragraph preceding the opinion paragraph
1. gross profit was 2% in the prior year 2. increase in interest exp. due to increase in debt 3. PPE acquisitions 4. shipping January orders 5. the industry historically
1. review sales and related product cost data 2. examine new debt agreement 3. review repairs and maintenance accounts for proper classifications 4. review sales returns subsequent to year end 5. review depreciation policies
1. accounts payable includes all outstanding 2. equity in investee 3. all stock issued is included 4. warrantry exp 5. search for unrecorded retirements
1. select cash disbursements made after year-end and examine supporting documentation 2. obtain and read the financial statements and audit report of the investee. apply appropriate calculations 3. confirm with third-party confirmation 4. perform analytical procedures to test the reasonableness of amount 5. inspect the property ledger and then tour clients facility
1. assume the potential effect on the financial statement is immaterial 2. assume the potential effect on the financial statement is moderate 3. assume the potential effect on the financial statement is high
1. unmodified ; no change ; no change ; no change ; none required 2. qualified ; no change ; modify ; modify ; insert preceding opinion 3. disclaimer ; modify ; modify ; modify ; insert preceding opinion
1. Investments are properly described and classified in the financial statements 2. recorded investments represent investments actually owned at the balance sheet date (BSD) 3. investments are properly valued at the BSD 1. AR represents all amounts owed to the entity at the BSD 2. the entity has legal right to all AR at the BSD 3. AR are stated at net realizable value 4. AR are properly described and presented in the financial statements. 1. the entity has legal right to property equipment acquired during the year 2. recorded property and equipment represent assets that actually exist at the balance sheet date 3. net property and equipment are properly value at the BSD
1. verify that transfers from the current to the non-current investment portfolio have been properly recorded 2. obtain positive confirmation as of the BSD of investment held by independent custodians 3. determine that any impairments in the price of investments have been properly recorded 1. perform sales cut-off tests to obtain assurance that sales transactions and corresponding entries for inventories and COGS are recorded in the same and proper period 2. review loan agreements for indications of whether AR have been factored or pledged 3. review the aged trial balance for significant past due accounts 4. review the AR trial balance for amounts due from officers and employees. 1. examine deeds and title insurance certificates 2. physically examine all major property and equipment additions 3. reviews the provision for depreciation exp. and determine that depreciable lives and methods used in the current year are consistent with those used in the prior year
Journal entry 1-3
1: EPS = increase ; DSAR = increase ; GP = increase 2: EPS = decrease ; DSAR = decrease ; GP = no impact 3: EPS = decrease ; DSAR = no impact ; GP = no impact
Tickmarks (row 2-9)
2 = agreed interest rate, terms and collateral to note and loan agreement 3 = agreed to prior year's audit documentation 4 = footed / cross-footed, without exception 5 = agreed loan agreement, validated bank deposit ticket, and board of directors authorization 6 = agreed to canceled checks and/or lenders monthly statement 7 = confirmed without exception 8 = traced amount of current years trial balance and general ledger 9 = tested reasonableness of calculation
Invoice numbers
2568 = No exception noted 2569 = Invoice quantity did not match sales order quantity 2570 = Invoice quantity did not match shipping quantity 2571 = No exception noted 2572 = No exception noted 2573 = Invoice quantity did not match sales order and shipping quantity 2574 = No exception noted 2575 = No exception noted 2576 = Invoice quantity did not match shipping quantity 2577 = Invoice quantity did not match sales order and shipping quantity 2578 = No exception noted
at the beginning of an engagement to review locomotiv co.'s financial statement for year 1, stiles, CPA asked you to prepare a workpaper
AR-C 90.A6
during the financial statement audit of a non-issuer, the engagement team discovered that reconciliations of intercompany accounts are not being performed on a timely basis.
AU-C 265.13
what section of the AICPA professional standards provides examples of deficiencies in the design of controls?
AU-C 265.A37
Management of cooper industries has identified
AU-C 501.22
Compared monthly revenue data by month to comparable prior periods and investigated unusual fluctuations.
Audit Procedure Performed: Analytical Procedure Classification of Audit Procedure: Substantive Procedure
Compared this year's expenses with last year's expenses and investigated unusual fluctuations.
Audit Procedure Performed: Analytical procedure Classification of Audit Procedure: Substantive procedures
Requested the bank to respond to the auditor with the client's account balance.
Audit Procedure Performed: Confirmation Classification of Audit Procedure: Substantive Procedure
Requested responses directly from customers.
Audit Procedure Performed: Confirmation Classification of Audit Procedure: Substantive procedure
Questioned management about subsequent events.
Audit Procedure Performed: Inquiry Classification of Audit Procedure: Substantive procedure
Asked management to describe any potential or actual legal actions, the probability of an unfavorable outcome; and the amount or range of potential loss for each legal action.
Audit Procedure Performed: Inquiry Classification of Audit Procedure:Substantive Procedure
Asked the accounting manager how often cash is deposited and by whom.
Audit Procedure Performed: Inquiry Classification of Audit Procedure: Test of controls
Examined invoices to support additions to the fixed asset account during the year.
Audit Procedure Performed: Inspection Classification of Audit Procedure: Substantive procedure
Examined sales invoices to see if they were initialed by the credit manager indicating credit approval.
Audit Procedure Performed: Inspection Classification of Audit Procedure: Tests of controls
Reviewed board of director minutes for authorization new debt financing.
Audit Procedure Performed: Inspection Classification of Audit Procedure: Tests of Controls
Watched the payroll distribution on an unannounced basis.
Audit Procedure Performed: Observation Classification of Audit Procedure: Tests of Controls
Observed the accounting clerk record the daily deposit of cash receipts.
Audit Procedure Performed: Observation Classification of Audit Procedure: Test of controls
Computed the amount of depreciation expense based on the book value, company's policy for depreciation, and estimated economic life and agreed the amount to the financial statements.
Audit Procedure Performed: Recalculation Classification of Audit Procedure: Substantive Procedure
Agreed sales invoices to credit files to determine whether the customer had a credit file and had been approved for credit
Audit Procedure Performed: Reperformance Classification of Audit Procedure: Test of controls
Selected various voucher packages that had been approved and matched the invoice, purchase order, and receiving report.
Audit Procedure Performed: Reperformance Classification of Audit Procedure: Tests of Controls
Expense: Rent
Auditor's Expectation: $1,770,000 Auditor's Decision: Above acceptable amount, further testing needed
Expense: Salary
Auditor's Expectation: $12,240,000 Auditor's Decision: Within threshold, no further testing needed
Expense: Miscellaneous
Auditor's Expectation: $157,500 Auditor's Decision: Within threshold, no further testing needed
Expense Account: Payroll tax expense
Auditor's Expectation: $165,470 Difference Between Actual and Expected?: No
Expense: Utilities
Auditor's Expectation: $172,800 Auditor's Decision: Below acceptable amount, further testing needed
Expense: Repairs and maintenance
Auditor's Expectation: $350,000 Auditor's Decision: Above acceptable amount, further testing needed
Expense Account: Bonus expense
Auditor's Expectation: $395,000 Difference Between Actual and Expected?: Yes
Expense: Interest expense
Auditor's Expectation: $528,220 Auditor's Decision: Within threshold, no further testing needed
Expense Account: Health insurance expense
Auditor's Expectation: $53,429 Difference Between Actual and Expected?: No
Expense Account: Salaries and wages
Auditor's Expectation: $685,483 Difference Between Actual and Expected?: Yes
